Industry and Competitor Analysis (Lec 05) Flashcards
What is an industry?
A group of firms that produce/offer similar products.
What is the purpose of an industry analysis and when is it conducted?
- Determine the potential of an industry
- Determine the favorability for a new firm
What are the three questions an entrepreneur must answer before perusing the idea of starting a firm, in relation to industries?
- Is the industry accessible?
- Does the industry contain markets that can be innovated upon or given more attention?
- Are there positions in the industry that avoid some of the negative attributes of the industry as a whole?
Describe what kind of factors affect performance, in relation to industry analysis?
Firm-Level - assets, products, culture, reputation
Industry-Level - threat of new entrants, bargaining power of suppliers, bargaining power of buyers, other related factors.
What are two trends to assess industry attractiveness?
- Environmental Trends
- Business Trends
What is the Five Forces Model?
- Framework for understanding the structure of an industry
- Used to determine industry profitability
What are the components of the Five Forces Model?
- Threat of Substitutes
- Threat of New Entrants
- Rivalry Among Existing Firms
- Bargaining Power of Suppliers
- Bargaining power of Buyers
“The extent to which substitutes suppress profitability of an industry..” refers to what force in the Five Forces Model?
Threat of Substitutes
The main way to reduce the Threat of Substitutes?
A firm provides amenities to decrease the likelihood the customer will substitute the service/product.
What traditional barriers to entry are erected to reduce the Threat of New Entrants?
- Economies of Sale
- Product Differentiation
- Capital Requirements
- Cost Advantages Independent of Size
- Access to Distribution Channels
- Government and Legal Barriers
What nontraditional barriers to entry are erected to reduce the Threat of New Entrants?
- Strength of Management Team
- Fist-Mover Advantage
- Passion of the Management Team and Employees
What is the major determinant of industry profitability and why?
Rivalry Among Existing Firms:
- Price competition driving down prices below level of costs.
Name two factors that determine the intensity of the rivalry among existing firms.
- Degree of difference between products
- Number and balance of competitors
- Growth rate of the industry
- Level of fixed costs
List three factors that affect the Bargaining Power of Suppliers.
Supplier concentration
Switching costs:
- Cost of switching suppliers
Threat of forward integration
Attractiveness of substitutes
List three factors that affect the Bargaining Power of Buyers.
Buyer group concentration
Buyer’s costs
Degree of standardization of
supplier’s products:
- If the supplier’s product is not much different from it’s competitors, the buyer has more bargaining power.
Threat of backward integration
